UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT
TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 19, 2015 (February 18, 2015)
KEY ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
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Maryland |
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001-08038 |
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04-2648081 |
(State or other Jurisdiction
of Incorporation) |
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(Commission
File Number) |
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(IRS Employer
Identification No.) |
1301 McKinney Street, Suite 1800
Houston, Texas 77010
(Address of principal executive offices and Zip Code)
713-651-4300
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
¨ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 |
Results of Operations and Financial Condition. |
On February 18, 2015, Key Energy
Services, Inc., a Maryland corporation (the Company) announced its results for the full year ended December 31, 2014. A copy of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1 and is incorporated by
reference. The information contained in this Item 2.02 (including the exhibit hereto) shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or
incorporated by reference in any filing under the Securities Act of 1933, as amended (the Securities Act), or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
On February 19, 2015, the Company will host a conference call to
discuss it fourth quarter and full year 2014 financial results. Among other things to be discussed on the call, the Company may discuss certain cost cutting actions related to compensation, including, but not limited to (i) headcount and wage
reductions for both executive and non-operational employees, (ii) an increase in the percentage of at risk performance-based pay for executive officers, and (iii) the use of negative discretion with respect to bonuses and
equity awards. Certain of these key changes implemented by the Compensation Committee of the Companys Board of Directors (the Committee) are set forth below.
The Company has revised its reporting segments as of the fourth quarter of 2014. The revised reporting segments are U.S. Rig Services, Fluid
Management Services, Coiled Tubing Services, Fishing and Rental Services, all of which previously comprised the U.S. Segment, along with the Functional Support and International Segments, which are unchanged. The Companys upcoming Annual
Report on Form 10-K for the fiscal year ended December 31, 2014 will recast the former U.S. Segment annual results for prior periods to reflect the new segment structure. The Companys upcoming Annual Report on Form 10-K for the fiscal
year ended December 31, 2014 will recast the former U.S. Segment annual results for prior periods to reflect the new segment structure and the Company also will post on its website schedules providing recast quarterly financial information by
segment for the 2014 fiscal year to reflect the change. The recast financial data is available at www.keyenergy.com under the headings Investor Center and Non-GAAP Reconciliations.
The information contained in Item 7.01 of this Form 8-K shall not be deemed filed for purposes of Section 18 of the
Exchange Act, and the information shall not be deemed incorporated by reference into any filing under the Securities Act or Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
The Committee previously made certain decisions regarding the compensation
of the Companys executive officers that did not require the Company to file a Current Report on Form 8-K under Item 5.02. However, the Committee has determined that the information would assist the Companys shareholders in more
fully understanding the Companys compensation program, thus the information below is voluntarily provided within this Current Report on Form 8-K.
Performance Based Compensation. The Committee adopted new performance unit award terms, including lengthening the performance period from two
independent one year periods to one three year period, and eliminating opportunities for payout when total shareholder return (TSR) performance is below a sixth placement amongst the peer group. In addition, the Committee revised the
CEOs long-term
incentive awards to target 85% performance based, up from 50% performance based in 2014 and revised the named executive officers (NEOs) long-term incentive awards to
target 50% performance based, up from 20% in 2014. In addition, the Committee revised our peer group to include companies that more reflect our current size. Our revised peer group for 2015 is comprised of the following companies (those companies
denoted with an * are new to the peer group):
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Basic Energy Services, Inc. |
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Patterson-UTI Energy, Inc. |
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C & J Energy Services, Inc.* |
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Pioneer Energy Services Corp.* |
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Exterran Holdings, Inc. |
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RPC, Inc. |
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Helix Energy Solutions Group, Inc. |
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Seventy-Seven Energy Inc.* |
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Oceaneering International, Inc. |
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Superior Energy Services, Inc. |
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Oil States International, Inc. |
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No Payments Made with Respect to Performance Units in 2014. The second tranche of performance units granted in
2013 and the first tranche of performance units granted in 2014 did not meet the performance expectation. As such, no payments were made with respect to any outstanding performance units in 2014.
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Participant |
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2014 Performance Units Granted |
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Grant Value (based on $7.33 stock price) |
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First Vesting Payout |
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Richard J. Alario |
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265,518 |
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$ |
1,946,247 |
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$ |
0 |
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Newton W. Wilson III |
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94,822 |
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$ |
695,045 |
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$ |
0 |
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J. Marshall Dodson |
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31,037 |
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$ |
227,501 |
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$ |
0 |
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Kim B. Clarke |
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27,024 |
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$ |
198,086 |
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$ |
0 |
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Kimberly R. Frye |
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22,559 |
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$ |
165,357 |
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$ |
0 |
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Barry B. Ekstrand |
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12,278 |
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$ |
260,260 |
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$ |
0 |
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Participant |
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2013 Performance Units Granted |
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Grant Value (based on $7.70 stock price) |
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First Vesting Payout |
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Second Vesting Payout |
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Richard J. Alario |
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259,500 |
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$ |
1,998,150 |
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$ |
0 |
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$ |
0 |
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Newton W. Wilson III |
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89,973 |
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$ |
692,792 |
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$ |
0 |
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$ |
0 |
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J. Marshall Dodson |
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5,550 |
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$ |
42,350 |
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$ |
0 |
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$ |
0 |
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Kim B. Clarke |
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25,153 |
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$ |
193,678 |
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$ |
0 |
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$ |
0 |
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Kimberly R. Frye |
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21,200 |
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$ |
163,240 |
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$ |
0 |
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$ |
0 |
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Barry B. Ekstrand |
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6,933 |
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$ |
53,384 |
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$ |
0 |
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$ |
0 |
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Negative Discretion Used in Determining Long Term Incentive Awards to NEOs. In 2015, the Compensation Committee
used negative discretion in awarding restricted stock to its NEOs by reducing the value of shares awarded by 40% to 50% compared to the value of shares awarded to the NEOs in 2014.
Restricted Shares
The following table sets forth the number of restricted shares granted on January 30, 2015 to our NEOs determined using the long-term incentive plan
multipliers. The number of restricted shares granted was based on the then existing stock price at or about the time of grant and the multiple of base salary recommended by the compensation consultant.
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2015
Restricted Shares |
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Grant Value
(based on $1.68 |
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Participant |
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Granted |
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stock price) |
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Richard J. Alario |
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250,000 |
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$ |
420,000 |
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J. Marshall Dodson |
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217,634 |
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$ |
365,625 |
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Kim B. Clarke |
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176,859 |
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$ |
297,123 |
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Kimberly R. Frye |
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154,018 |
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$ |
258,750 |
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Performance Units
The
following table sets forth the number of restricted shares granted on January 30, 2015 to our NEOs. The number of performance units granted was determined using the long-term incentive plan multipliers and the performance unit allocations. The
number of performance units granted was based on the then existing stock price at or about the time of grant and the multiple of base salary recommended by the compensation consultant. The performance units granted in 2015 were measured based on a
performance period of January 1, 2015-December 31, 2017.
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Participant |
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2015 Performance Units Granted |
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Grant Value (based on $1.68 stock price) |
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Richard J. Alario |
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1,390,178 |
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$ |
1,946,247 |
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J. Marshall Dodson |
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217,634 |
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$ |
365,625 |
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Kim B. Clarke |
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176,859 |
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$ |
297,123 |
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Kimberly R. Frye |
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154,018 |
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$ |
258,750 |
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Negative Discretion Used in Determining 2014 Bonus Payout. We met for our financial performance threshold.
Nonetheless, the Compensation Committee exercised negative discretion in determining the bonus payout.
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The CEO was not paid any cash bonus. |
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The payments to Mr. Dodson and Mses. Clarke and Frye were as follows: |
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Participant |
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Bonus Paid |
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J. Marshall Dodson |
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$ |
125,000 |
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Kim B. Clarke |
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$ |
125,000 |
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Kimberly R. Frye |
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$ |
89,700 |
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In addition to the CEO, no bonus was paid to Messrs. Wilson or Ekstrand. |
NEO Salary Reductions.
Effective February 22, 2015, the Compensation Committee reduced the CEOs base salary by 10% and the NEOs base salaries by 7%, resulting in base salaries at the 28th market
percentile of the prior peer group.
Director Fee Reduction. Effective January 1, 2015, as part of the Companys cost cutting
measures; the Compensation Committee temporarily reduced the directors base cash retainer by 10% or $7,500 annually.
Item 9.01 |
Financial Statements and Exhibits. |
99.1 Press release dated February 18, 2015
reporting results for the full year ended December 31, 2014.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
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KEY ENERGY SERVICES, INC. |
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Date: February 18, 2015 |
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By: |
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/s/ Kimberly R. Frye |
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Kimberly R. Frye |
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Senior Vice President, General Counsel and Secretary |
Exhibit Index
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Exhibit No. |
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Description |
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99.1 |
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Press release dated February 18, 2015 reporting results for the quarter ended December 31, 2014. |
Exhibit 99.1
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Key Energy Services, Inc. |
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February 18, 2015 |
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1301 McKinney Street |
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Suite 1800 |
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Contact: |
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Houston, TX 77010 |
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West Gotcher, Investor Relations |
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713-757-5539 |
FOR IMMEDIATE RELEASE
Key Energy Services Reports Fourth Quarter and Full-Year 2014 Earnings
HOUSTON, TX, February 18, 2015 Key Energy Services, Inc. (NYSE: KEG) reported fourth quarter 2014 consolidated revenues of $354.8 million
and a pre-tax GAAP loss of $80.8 million, or $0.34 per share. The results for the fourth quarter include a pre-tax charge of $31.7 million, or $0.13 per share, for a true-up to the impairment charge of the Companys U.S. assets taken in the
third quarter and an additional impairment of the Companys goodwill in the fourth quarter, pre-tax costs of $19.6 million, or $0.08 per share, related to the previously disclosed Foreign Corrupt Practices Act (FCPA) investigations
and a pre-tax loss of $3.7 million, or $0.02 per share, on the disposal of obsolete assets. Excluding these items, the Company reported a pre-tax loss of $24.7 million, or $0.10 per share. Third quarter 2014 consolidated revenues were $365.8 million
with a pre-tax GAAP loss of $97.0 million, or $0.41 per share. The results for the third quarter included a pre-tax charge of $60.8 million, or $0.25 per share, for an impairment of the Companys U.S. assets and pre-tax costs of $16.1 million,
or $0.07 per share, related to the FCPA investigations. Excluding these two items, in the third quarter the Company reported a pre-tax loss of $20.1 million, or $0.08 per share.
The following table sets forth summary data for the fourth quarter 2014 and prior comparable quarterly periods.
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Three Months Ended (unaudited) |
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December 31, 2014 |
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September 30, 2014 |
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December 31, 2013 |
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(in millions, except per share amounts) |
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Revenues |
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$ |
354.8 |
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$ |
365.8 |
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$ |
362.2 |
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Loss attributable to Key |
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(52.3 |
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(62.2 |
) |
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(12.5 |
) |
Diluted loss per share attributable to Key |
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(0.34 |
) |
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(0.41 |
) |
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(0.08 |
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Adjusted EBITDA* |
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16.1 |
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28.1 |
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57.3 |
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* |
Adjusted EBITDA does not exclude costs incurred in connection with the Companys on-going FCPA investigations. |
For the full-year 2014, consolidated revenues were $1.43 billion, down 10.3% compared to $1.59 billion for the full-year 2013. Full-year 2014 GAAP net loss
was $178.6 million, or $1.16 per share, compared to full-year 2013 GAAP net loss of $21.8 million, or $0.14 per share.
The following table sets forth
summary data from continuing operations for the full-year 2014 and 2013.
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Twelve Months Ended |
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December 31, 2014 |
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December 31, 2013 |
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(unaudited) |
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(in millions, except per share amounts) |
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Revenues |
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$ |
1,427.3 |
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$ |
1,591.7 |
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Income attributable to Key |
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(178.6 |
) |
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(21.8 |
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Diluted loss per share attributable to Key |
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(1.16 |
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(0.14 |
) |
Adjusted EBITDA (unaudited)* |
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124.1 |
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268.4 |
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* |
Adjusted EBITDA does not exclude costs incurred in connection with the Companys on-going FCPA investigations. |
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February 18, 2015 |
U.S. Results
We revised our reporting segments as of the fourth quarter of 2014. The revised reporting segments are U.S. Rig Services, Fluid Management Services, Coiled
Tubing Services, Fishing and Rental Services, all of which previously comprised our U.S. Segment, along with our Functional Support and International Segments, which are unchanged.
Fourth quarter 2014 U.S. Rig Services revenues of $166.1 million were down 6.8% as compared to the third quarter of 2014. Fourth quarter operating income was
$20.9 million, or 12.6% of revenue, compared to third quarter operating income of $28.1 million, or 15.8% of revenue. Fourth quarter results were impacted by seasonal effects, including holidays and severe weather in certain of our principal
operating regions. Although revenue for this segment was down sequentially, our largest well service rigs exhibited strong performance with activity up 3% sequentially, driven by growing demand in horizontal well maintenance work.
Fourth quarter 2014 Fluid Management Services revenues of $62.1 million were down 2.7% as compared to the third quarter of 2014. Fourth quarter operating
income was $0.2 million, or 0.3% of revenue, compared to third quarter operating loss of $0.1 million, or -0.2% of revenue. Fourth quarter results include a loss on the sale of obsolete frac tanks in the
Bakken of $3.7 million; excluding this loss, operating income was $3.9 million, or 6.2% of revenue. More efficient use of our assets helped offset expected seasonal activity declines and yielded improved results.
Fourth quarter 2014 Fishing & Rental Services revenues of $54.5 million were down 1.7% as compared to the third quarter of 2014. Fourth quarter
operating loss was $7.2 million, or -13.1% of revenue, compared to third quarter operating loss of $55.4 million, or -99.8% of revenue. During the third and fourth quarters, we recorded impairments of frac stack and well testing assets, included in
our Fishing & Rental Services segment, of $60.8 million and $12.6 million, respectively. Excluding these impairments, segment operating income was $5.4 million, or 9.7% of revenue in third quarter and $5.4 million, or 10.0% of revenue, in
the fourth quarter. Fourth quarter results for our traditional fishing and rental services were impacted adversely by typical seasonal effects, however, improved operational execution in our frac stack and well testing services helped to offset
these seasonal factors.
Fourth quarter 2014 Coiled Tubing Services revenues of $43.5 million were up 2.7% as compared to the third quarter of 2014.
Fourth quarter operating loss was $16.4 million, or -37.7% of revenue, compared to third quarter operating income of less than $0.1 million, or 0.0% of revenue. Fourth quarter results include an impairment of $19.1 million to the goodwill of this
segment; excluding this impairment, operating income was $2.7 million, or 6.2% of revenue. Fourth quarter results improved as compared to the third quarter as two previously out-of-service 2 3/8 coiled tubing units returned to service, helping
to offset typical seasonal factors.
International Segment
Fourth quarter 2014 International revenues were $28.6 million, up 10.3% as compared to third quarter 2014 revenues of $26.0 million. Fourth quarter operating
loss was $8.8 million, or -30.9% of revenues, compared to third quarter operating loss of $9.3 million, or -35.7% of revenues. The contract that was awarded to Key by PEMEX in the third quarter contributed to the sequential revenue improvement.
Costs associated with readying previously idle rigs to work under this contract offset the profit generation from our new contract.
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February 18, 2015 |
General and Administrative Expenses
General and Administrative (G&A) expenses were $73.7 million for the fourth quarter compared to $65.2 million in the prior quarter. The sequential increase
was partly attributable to expenses associated with the FCPA investigation, which increased by $3.5 million in the fourth quarter. The Special Committee of our Board of Directors currently expects to substantially complete the fact-finding phase of
its FCPA investigation by the end of March 2015.
Capital Expenditures and Balance Sheet
Capital expenditures were $53.5 million during the fourth quarter 2014 and $161.6 for the full-year 2014. Keys consolidated cash balance at
December 31, 2014 was $27.3 million compared to $57.4 million at September 30, 2014. Total debt at December 31, 2014 was $748.4 million compared to total debt of $758.6 million at September 30, 2014. At the end of the quarter,
there was $279.6 million available under the Companys $400 million senior secured credit facility. Net debt to total capitalization at December 31, 2014 was 39.9%.
Overview and Outlook
Keys Chairman, President and
Chief Executive Officer, Dick Alario, stated, We are pleased that several of our U.S. segments were able to achieve improved financial performance in the face of adverse seasonal conditions due to better operational execution. Id like to
thank Keys managers and employees for their on-going efforts to improve our Companys performance.
As conditions in the U.S. services
market are unfolding in 2015, we are enacting a series of cost cutting initiatives at both the corporate and field levels, which include fixed-cost, headcount and wage reductions, along with supply-chain efficiencies, in order to help mitigate
margin pressures our businesses will face in this market.
We see the economic rationale for our customers to exploit existing wellbores as one of
the few resilient service opportunities in the U.S. landscape, and we also see it at the core of Keys future. Further, we expect that as the secular trend of the aging horizontal wellbore continues, the importance of our services will continue
to grow, perhaps even more so in a moderated oil price environment, and Key has positioned itself to capitalize on this element of production maintenance demand. We believe that we are taking the appropriate actions, including sizing our cost
structure to survive this downturn and preserving capital, to emerge a stronger company.
Conference Call Information
As previously announced, Key management will host a conference call to discuss its fourth quarter and full-year 2014 financial results on Thursday,
February 19, 2015 at 10:00 a.m. CST. Callers from the U.S. and Canada should dial 888-794-4637 to access the call. International callers should dial 660-422-4879. All callers should ask for the Key Energy Services Conference Call or
provide the access code 69570008. The conference call will also be available live via the internet. To access the webcast, go to www.keyenergy.com and select Investor Relations.
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February 18, 2015 |
A telephonic replay of the conference call will be available on Thursday, February 19, 2015, beginning
approximately two hours after the completion of the conference call and will remain available for one week. To access the replay, call 855-859-2056 or 800-585-8367. The access code for the replay is 69570008. The replay will also be accessible at
www.keyenergy.com under Investor Relations for a period of at least 90 days.
4
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February 18, 2015 |
Consolidated Statements of Operations (in thousands, except per share amounts, unaudited):
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Three Months Ended |
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Twelve Months Ended |
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December 31, 2014 (1) |
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September 30, 2014 (1) |
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December 31, 2013 (1) |
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December 31, 2014 (1) |
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December 31, 2013 |
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REVENUES |
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$ |
354,802 |
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$ |
365,798 |
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$ |
362,164 |
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$ |
1,427,336 |
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$ |
1,591,676 |
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COSTS AND EXPENSES: |
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Direct operating expenses |
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266,354 |
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272,112 |
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259,881 |
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1,059,651 |
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1,114,462 |
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Depreciation and amortization expense |
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46,535 |
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50,924 |
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55,934 |
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200,738 |
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225,297 |
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General and administrative expenses |
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73,675 |
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65,224 |
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48,107 |
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249,646 |
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221,753 |
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Impairment expense |
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31,697 |
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|
60,792 |
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121,176 |
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Operating income (loss) |
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(63,459 |
) |
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(83,254 |
) |
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(1,758 |
) |
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(203,875 |
) |
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|
30,164 |
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Interest expense, net of amounts capitalized |
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13,830 |
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13,417 |
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13,602 |
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54,227 |
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55,204 |
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Other (income) loss, net |
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3,463 |
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348 |
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75 |
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1,009 |
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(803 |
) |
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Loss before tax income taxes |
|
|
(80,752 |
) |
|
|
(97,019 |
) |
|
|
(15,435 |
) |
|
|
(259,111 |
) |
|
|
(24,237 |
) |
|
|
|
|
|
|
Income tax benefit |
|
|
28,448 |
|
|
|
34,790 |
|
|
|
2,917 |
|
|
|
80,483 |
|
|
|
3,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(52,304 |
) |
|
|
(62,229 |
) |
|
|
(12,518 |
) |
|
|
(178,628 |
) |
|
|
(21,173 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS ATTRIBUTABLE TO KEY |
|
$ |
(52,304 |
) |
|
$ |
(62,229 |
) |
|
$ |
(12,518 |
) |
|
$ |
(178,628 |
) |
|
$ |
(21,768 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share attributable to Key: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.34 |
) |
|
$ |
(0.41 |
) |
|
$ |
(0.08 |
) |
|
$ |
(1.16 |
) |
|
$ |
(0.14 |
) |
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
153,501 |
|
|
|
153,550 |
|
|
|
152,335 |
|
|
|
153,371 |
|
|
|
152,271 |
|
5
|
|
|
|
|
February 18, 2015 |
Condensed Consolidated Balance Sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
|
|
(unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
27,304 |
|
|
$ |
28,306 |
|
Other current assets |
|
|
406,491 |
|
|
|
477,847 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
433,795 |
|
|
|
506,153 |
|
|
|
|
Property and equipment, net |
|
|
1,235,258 |
|
|
|
1,365,646 |
|
Goodwill |
|
|
582,739 |
|
|
|
624,875 |
|
Other assets, net |
|
|
81,706 |
|
|
|
90,796 |
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
2,333,498 |
|
|
$ |
2,587,470 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
77,631 |
|
|
$ |
58,826 |
|
Other current liabilities |
|
|
164,227 |
|
|
|
173,518 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
241,858 |
|
|
|
232,344 |
|
|
|
|
Long-term debt, less current portion |
|
|
748,426 |
|
|
|
763,981 |
|
Other non-current liabilities |
|
|
285,151 |
|
|
|
340,052 |
|
|
|
|
Equity |
|
|
1,058,063 |
|
|
|
1,251,093 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
2,333,498 |
|
|
$ |
2,587,470 |
|
|
|
|
|
|
|
|
|
|
Consolidated Cash Flow Data (in thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended |
|
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
|
|
(unaudited) |
|
|
|
|
Net cash provided by operating activities |
|
$ |
164,168 |
|
|
$ |
228,643 |
|
Net cash used in investing activities |
|
|
(146,840 |
) |
|
|
(160,881 |
) |
Net cash used in financing activities |
|
|
(22,058 |
) |
|
|
(85,492 |
) |
Effect of exchange rates on cash |
|
|
3,728 |
|
|
|
87 |
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(1,002 |
) |
|
|
(17,643 |
) |
Cash and cash equivalents, beginning of period |
|
|
28,306 |
|
|
|
45,949 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
27,304 |
|
|
$ |
28,306 |
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
February 18, 2015 |
Segment Revenue and Operating Income (in thousands, except for percentages, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended (Unaudited) |
|
Revenues |
|
December 31, 2014 |
|
|
September 30, 2014 |
|
|
December 31, 2013 |
|
U.S Rig Services |
|
$ |
166,095 |
|
|
$ |
178,220 |
|
|
$ |
165,964 |
|
Fluid Management Services |
|
|
62,096 |
|
|
|
63,818 |
|
|
|
64,214 |
|
Coiled Tubing Services |
|
|
43,452 |
|
|
|
42,309 |
|
|
|
41,152 |
|
Fishing & Rental Services |
|
|
54,546 |
|
|
|
55,502 |
|
|
|
52,754 |
|
International |
|
|
28,613 |
|
|
|
25,949 |
|
|
|
38,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total |
|
$ |
354,802 |
|
|
$ |
365,798 |
|
|
$ |
362,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
U.S Rig Services |
|
$ |
20,947 |
|
|
$ |
28,137 |
|
|
$ |
35,485 |
|
Fluid Management Services |
|
|
164 |
|
|
|
(142 |
) |
|
|
3,802 |
|
Coiled Tubing Services |
|
|
(16,391 |
) |
|
|
16 |
|
|
|
3,602 |
|
Fishing & Rental Services |
|
|
(7,162 |
) |
|
|
(55,415 |
) |
|
|
4,078 |
|
International |
|
|
(8,839 |
) |
|
|
(9,256 |
) |
|
|
(20,213 |
) |
Functional Support |
|
|
(52,178 |
) |
|
|
(46,594 |
) |
|
|
(28,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total |
|
$ |
(63,459 |
) |
|
$ |
(83,254 |
) |
|
$ |
(1,758 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) % of Revenues |
|
|
|
|
|
|
|
|
|
Rig-Based Services |
|
|
12.6 |
% |
|
|
15.8 |
% |
|
|
21.4 |
% |
Fluid Management Services |
|
|
0.3 |
% |
|
|
(0.2 |
)% |
|
|
5.9 |
% |
Coiled Tubing Services |
|
|
(37.7 |
)% |
|
|
0.0 |
% |
|
|
8.8 |
% |
Fishing & Rental Services |
|
|
(13.1 |
)% |
|
|
(99.8 |
)% |
|
|
7.7 |
% |
International |
|
|
(30.9 |
)% |
|
|
(35.7 |
)% |
|
|
(53.1 |
)% |
Consolidated Total |
|
|
(17.9 |
)% |
|
|
(22.8 |
)% |
|
|
(0.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended |
|
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Revenues |
|
(Unaudited) |
|
|
|
|
U.S Rig Services |
|
$ |
679,045 |
|
|
$ |
673,465 |
|
Fluid Management Services |
|
|
249,589 |
|
|
|
271,709 |
|
Coiled Tubing Services |
|
|
173,364 |
|
|
|
193,184 |
|
Fishing & Rental Services |
|
|
212,598 |
|
|
|
238,611 |
|
International |
|
|
112,740 |
|
|
|
214,707 |
|
|
|
|
|
|
|
|
|
|
Consolidated Total |
|
$ |
1,427,336 |
|
|
$ |
1,591,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
|
|
|
|
U.S Rig Services |
|
$ |
96,387 |
|
|
$ |
133,558 |
|
Fluid Management Services |
|
|
3,327 |
|
|
|
4,038 |
|
Coiled Tubing Services |
|
|
(10,819 |
) |
|
|
23,427 |
|
Fishing & Rental Services |
|
|
(58,944 |
) |
|
|
31,309 |
|
International Operations |
|
|
(65,432 |
) |
|
|
(26,657 |
) |
Functional Support |
|
|
(168,394 |
) |
|
|
(135,511 |
) |
|
|
|
|
|
|
|
|
|
Consolidated Total |
|
$ |
(203,875 |
) |
|
$ |
30,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) % of Revenues |
|
|
|
|
|
|
Rig-Based Services |
|
|
14.2 |
% |
|
|
19.8 |
% |
Fluid Management Services |
|
|
1.3 |
% |
|
|
1.5 |
% |
Coiled Tubing Services |
|
|
(6.2 |
)% |
|
|
12.1 |
% |
Fishing & Rental Services |
|
|
(27.7 |
)% |
|
|
13.1 |
% |
International |
|
|
(58.0 |
)% |
|
|
(12.4 |
)% |
Consolidated Total |
|
|
(14.3 |
)% |
|
|
1.9 |
% |
7
|
|
|
|
|
February 18, 2015 |
Following is a reconciliation of net loss as presented in accordance with United States generally accepted
accounting principles (GAAP) to EBITDA and Adjusted EBITDA as required under Regulation G of the Securities Exchange Act of 1934.
Reconciliations of
EBITDA and Adjusted EBITDA to net loss (in thousands, except for percentages, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
December 31, 2014 |
|
|
September 30, 2014 |
|
|
December 31, 2013 |
|
Net loss |
|
$ |
(52,304 |
) |
|
$ |
(62,229 |
) |
|
$ |
(12,518 |
) |
Income tax benefit |
|
|
(28,448 |
) |
|
|
(34,790 |
) |
|
|
(2,917 |
) |
Interest expense, net of amounts capitalized |
|
|
13,830 |
|
|
|
13,417 |
|
|
|
13,602 |
|
Interest income |
|
|
(19 |
) |
|
|
(14 |
) |
|
|
(90 |
) |
Depreciation and amortization |
|
|
46,535 |
|
|
|
50,924 |
|
|
|
55,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
(20,406 |
) |
|
$ |
(32,692 |
) |
|
$ |
54,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of revenues |
|
|
-5.8 |
% |
|
|
-8.9 |
% |
|
|
14.9 |
% |
|
|
|
|
Severance costs |
|
|
1,086 |
|
|
|
|
|
|
|
3,337 |
|
Impairment expense |
|
|
31,697 |
|
|
|
60,792 |
|
|
|
|
|
Loss on sales of assets |
|
|
3,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA* |
|
$ |
16,077 |
|
|
$ |
28,100 |
|
|
$ |
57,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of revenues |
|
|
4.5 |
% |
|
|
7.7 |
% |
|
|
15.8 |
% |
|
|
|
|
Revenues |
|
$ |
354,802 |
|
|
$ |
365,798 |
|
|
$ |
362,164 |
|
* |
Adjusted EBITDA does not exclude costs incurred in connection with the Companys on-going FCPA investigations. |
8
|
|
|
|
|
February 18, 2015 |
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Net loss |
|
$ |
(178,628 |
) |
|
$ |
(21,173 |
) |
Income tax benefit |
|
|
(80,483 |
) |
|
|
(3,064 |
) |
Income attributable to noncontrolling interest, excluding depreciation and amortization |
|
|
|
|
|
|
(1,369 |
) |
Interest expense, net of amounts capitalized |
|
|
54,227 |
|
|
|
55,204 |
|
Interest income |
|
|
(81 |
) |
|
|
(219 |
) |
Depreciation and amortization |
|
|
200,738 |
|
|
|
225,297 |
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
(4,227 |
) |
|
$ |
254,676 |
|
|
|
|
|
|
|
|
|
|
% of revenues |
|
|
-0.3 |
% |
|
|
16.0 |
% |
|
|
|
Severance costs |
|
|
3,413 |
|
|
|
9,658 |
|
Impairment expense |
|
|
121,176 |
|
|
|
|
|
Cancellation fees |
|
|
|
|
|
|
1,937 |
|
Loss on sales of assets |
|
|
3,700 |
|
|
|
|
|
Executive retirement |
|
|
|
|
|
|
2,153 |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA* |
|
$ |
124,062 |
|
|
$ |
268,424 |
|
|
|
|
|
|
|
|
|
|
% of revenues |
|
|
8.7 |
% |
|
|
16.9 |
% |
|
|
|
Revenues |
|
$ |
1,427,336 |
|
|
$ |
1,591,676 |
|
* |
Adjusted EBITDA does not exclude costs incurred in connection with the Companys on-going FCPA investigations. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2014 |
|
|
|
U.S. Rig Services |
|
|
Fluid Management Services |
|
|
Coiled Tubing Services |
|
|
Fishing and Rental Services |
|
|
International |
|
|
Functional Support |
|
|
Total |
|
Net income (loss) |
|
$ |
20,463 |
|
|
$ |
(13 |
) |
|
$ |
(16,526 |
) |
|
$ |
(7,325 |
) |
|
$ |
(8,577 |
) |
|
$ |
(40,326 |
) |
|
$ |
(52,304 |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,836 |
) |
|
|
(25,612 |
) |
|
|
(28,448 |
) |
Interest expense, net of amounts capitalized |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
3 |
|
|
|
13,826 |
|
|
|
13,830 |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18 |
) |
|
|
(1 |
) |
|
|
(19 |
) |
Depreciation and amortization |
|
|
15,024 |
|
|
|
7,336 |
|
|
|
5,720 |
|
|
|
8,358 |
|
|
|
6,923 |
|
|
|
3,174 |
|
|
|
46,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
35,487 |
|
|
$ |
7,323 |
|
|
$ |
(10,805 |
) |
|
$ |
1,033 |
|
|
$ |
(4,505 |
) |
|
$ |
(48,939 |
) |
|
$ |
(20,406 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of revenues |
|
|
21.4 |
% |
|
|
11.8 |
% |
|
|
-24.9 |
% |
|
|
1.9 |
% |
|
|
-15.7 |
% |
|
|
0.0 |
% |
|
|
-5.8 |
% |
|
|
|
|
|
|
|
|
Severance costs |
|
|
29 |
|
|
|
86 |
|
|
|
9 |
|
|
|
|
|
|
|
241 |
|
|
|
721 |
|
|
|
1086 |
|
Impairment expense |
|
|
|
|
|
|
|
|
|
|
19,100 |
|
|
|
12,597 |
|
|
|
|
|
|
|
|
|
|
|
31,697 |
|
Loss on sales of assets |
|
|
|
|
|
|
3,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA* |
|
$ |
35,516 |
|
|
$ |
11,109 |
|
|
$ |
8,304 |
|
|
$ |
13,630 |
|
|
$ |
(4,264 |
) |
|
$ |
(48,218 |
) |
|
$ |
16,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of revenues |
|
|
21.4 |
% |
|
|
17.9 |
% |
|
|
19.1 |
% |
|
|
25.0 |
% |
|
|
-14.9 |
% |
|
|
0.0 |
% |
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
166,095 |
|
|
$ |
62,096 |
|
|
$ |
43,452 |
|
|
$ |
54,546 |
|
|
$ |
28,613 |
|
|
|
|
|
|
$ |
354,802 |
|
* |
Adjusted EBITDA does not exclude costs incurred in connection with the Companys on-going FCPA investigations. |
9
|
|
|
|
|
February 18, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2014 |
|
|
|
U.S. Rig Services |
|
|
Fluid Management Services |
|
|
Coiled Tubing Services |
|
|
Fishing and Rental Services |
|
|
International |
|
|
Functional Support |
|
|
Total |
|
Net income (loss) |
|
$ |
96,922 |
|
|
|
3,581 |
|
|
|
(10,443 |
) |
|
|
(58,794 |
) |
|
|
(57,206 |
) |
|
|
(152,688 |
) |
|
|
(178,628 |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,718 |
) |
|
|
(68,765 |
) |
|
|
(80,483 |
) |
Interest expense, net of amounts capitalized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
54,195 |
|
|
|
54,227 |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54 |
) |
|
|
(27 |
) |
|
|
(81 |
) |
Depreciation and amortization |
|
|
59,190 |
|
|
|
31,870 |
|
|
|
23,375 |
|
|
|
44,004 |
|
|
|
30,311 |
|
|
|
11,988 |
|
|
|
200,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
156,112 |
|
|
$ |
35,451 |
|
|
$ |
12,932 |
|
|
$ |
(14,790 |
) |
|
$ |
(38,635 |
) |
|
$ |
(155,297 |
) |
|
$ |
(4,227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of revenues |
|
|
23.0 |
% |
|
|
14.2 |
% |
|
|
7.5 |
% |
|
|
-7.0 |
% |
|
|
-34.3 |
% |
|
|
0.0 |
% |
|
|
-0.3 |
% |
|
|
|
|
|
|
|
|
Severance costs |
|
|
122 |
|
|
|
86 |
|
|
|
9 |
|
|
|
32 |
|
|
|
2,251 |
|
|
|
913 |
|
|
|
3,413 |
|
Impairment expense |
|
|
|
|
|
|
|
|
|
|
19,100 |
|
|
|
73,389 |
|
|
|
28,687 |
|
|
|
|
|
|
|
121,176 |
|
Loss on sales of assets |
|
|
|
|
|
|
3,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA* |
|
$ |
156,234 |
|
|
$ |
39,237 |
|
|
$ |
32,041 |
|
|
$ |
58,631 |
|
|
$ |
(7,697 |
) |
|
$ |
(154,384 |
) |
|
$ |
124,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of revenues |
|
|
23.0 |
% |
|
|
15.7 |
% |
|
|
18.5 |
% |
|
|
27.6 |
% |
|
|
-6.8 |
% |
|
|
0.0 |
% |
|
|
8.7 |
% |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
679,045 |
|
|
$ |
249,589 |
|
|
$ |
173,364 |
|
|
$ |
212,598 |
|
|
$ |
112,740 |
|
|
|
|
|
|
$ |
1,427,336 |
|
* |
Adjusted EBITDA does not exclude costs incurred in connection with the Companys on-going FCPA investigations. |
EBITDA is defined as income or loss attributable to Key before interest, taxes, depreciation, and amortization.
Adjusted EBITDA is EBITDA as further adjusted for certain non-recurring or extraordinary items such as loss on debt extinguishment, certain
other gains or losses, asset retirements and impairments, and certain non-recurring transaction or other costs.
EBITDA and Adjusted EBITDA are
non-GAAP measures that are used as supplemental financial measures by the Companys management and directors and by external users of the Companys financial statements, such as investors, to assess:
|
|
|
The financial performance of the Companys assets without regard to financing methods, capital structure or historical cost basis; |
|
|
|
The ability of the Companys assets to generate cash sufficient to pay interest on its indebtedness; |
|
|
|
The Companys operating performance and return on invested capital as compared to those of other companies in the well services industry, without regard to financing methods and capital structure; and
|
|
|
|
The Companys operating trends underlying the items that tend to be of a non-recurring nature. |
EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered an alternative to net income, operating income, cash flow from
operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA and Adjusted EBITDA exclude some, but not all, items that affect net income and operating income and these measures may vary
among other companies. Limitations to using EBITDA and Adjusted EBITDA as an analytical tool include:
|
|
|
EBITDA and Adjusted EBITDA do not reflect Keys current or future requirements for capital expenditures or capital commitments; |
|
|
|
EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements necessary to service, interest or principal payments on Keys debt; |
|
|
|
EBITDA and Adjusted EBITDA do not reflect income taxes; |
10
|
|
|
|
|
February 18, 2015 |
|
|
|
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash
requirements for such replacements; |
|
|
|
Other companies in Keys industry may calculate EBITDA and Adjusted EBITDA differently than Key does, limiting their usefulness as a comparative measure; and |
|
|
|
EBITDA and Adjusted EBITDA are a different calculation from earnings before interest, taxes, depreciation and amortization as defined for purposes of the financial covenants in the Companys senior
secured credit facility, and therefore should not be relied upon for assessing compliance with covenants. |
11
|
|
|
|
|
February 18, 2015 |
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any
statements as to matters that are not of historic fact are forward-looking statements. These forward-looking statements are based on Keys current expectations, estimates and projections about Key, its industry, its managements beliefs
and certain assumptions made by management, and include statements regarding estimated capital expenditures, future operational and activity expectations, international growth, and anticipated financial performance for 2015. No assurance can be
given that such expectations, estimates or projections will prove to have been correct. Whenever possible, these forward-looking statements are identified by words such as expects, believes,
anticipates and similar phrases.
Readers are cautioned that any such forward-looking statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict, including, but not limited to: risks that Key will be unable to achieve its financial, capital expenditure and operational projections,
including quarterly and annual projections of revenue and/or operating income and risks that Keys expectations regarding future activity levels, customer demand, and pricing stability may not materialize (whether for Key as a whole or for
geographic regions and/or business segments individually); risks that fundamentals in the U.S. oil and gas markets may not yield anticipated future growth in Keys businesses, or could further deteriorate or worsen from the recent market
declines, and/or that Key could experience further unexpected declines in activity and demand for its rig service, fluid management service, coiled tubing service, and fishing and rental service businesses; risks relating to Keys ability to
implement technological developments and enhancements; risks relating to compliance with environmental, health and safety laws and regulations, as well as actions by governmental and regulatory authorities; risks relating to compliance with the FCPA
and anti-corruption laws, including risks related to increased costs in connection with FCPA investigations; risks regarding the timing or conclusion of the FCPA investigations; risks affecting Keys international operations, including risks
that Key may not be able to achieve its international growth and mobilization strategy in the foreign countries in which Key operates; risks that Key may be unable to achieve the benefits expected from acquisition and disposition transactions, and
risks associated with integration of the acquired operations into Keys operations; risks, in responding to changing or declining market conditions, that Key may not be able to reduce, and could even experience increases in, the costs of labor,
fuel, equipment and supplies employed and used in Keys businesses; risks relating to changes in the demand for or the price of oil and natural gas; risks that Key may not be able to execute its capital expenditure program and/or that any such
capital expenditure investments, if made, will not generate adequate returns; risks that Key may not be able to refinance its credit facility as expected; risks that Key may not have sufficient liquidity; and other risks affecting Keys ability
to maintain or improve operations, including its ability to maintain prices for services under market pricing pressures, weather risks, and the impact of potential increases in general and administrative expenses.
Because such statements involve risks and uncertainties, many of which are outside of Keys control, Keys actual results and performance may
differ materially from the results expressed or implied by such forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Other important risk factors that
may affect Keys business, results of operations and financial position are discussed in its most recently filed Annual Report on Form 10-K, recent Quarterly Reports on Form 10-Q, recent Current Reports on Form 8-K and in other Securities and
Exchange Commission filings. Unless otherwise required by law, Key also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made here.
However, readers should review carefully reports and documents that Key files periodically with the Securities and Exchange Commission.
About Key
Energy Services
Key Energy Services is the largest onshore, rig-based well servicing contractor based on the number of rigs owned. Key provides a
complete range of well intervention services and has operations in all major onshore oil and gas producing regions of the continental United States and internationally in Mexico, Colombia, Ecuador, the Middle East and Russia.
12